Will the Nigerian Stock Exchange ever regain its shine?

Formerly one of the world’s best performing frontier capital markets, Nigeria’s bourse is struggling.


Once upon a time, you could become rich very quickly by investing in the Nigerian stock market. Between May 2006 and March 2008, the Nigerian Stock Exchange All Share Index almost tripled.

But then the bubble burst, and in 12 months the market lost more value than it had gained in those two years. Many retail investors are still smarting from their losses, but it is not their absence that weighs most heavily on the market. “The Nigerian equities market was largely driven by foreign investors.

Their absence is bound to impact on the exchange,” says Fiona Ahimie, head of equities brokerage at FBN Quest, a leading securities firm. She says that foreign investors have stayed out not because of past losses but because of what they believe is still an overvalued naira, inconsistent and unpredictable foreign exchange regulations, and restrictions on dividend remittance.

In April, the monetary authorities finally made provisions for them to remit earned dividends, but many remain sceptical. With an outright floatation of the naira now largely out of the question, all eyes are on the crude oil price, which has been trending above $50, and has buoyed the country’s foreign exchange reserves. However, most foreign investors will probably only feel comfortable when the price gets closer to $100.

Not worth the risk

What about local institutional investors? Pension funds, awash with cash and allowed to allocate up

to 25% of their assets under management to equities, have been reluctant to take on equity exposure. The diversification benefit is not worth the risk it seems. Charles Omoera, head of research at StanbicIBTC Pension Managers, puts industry holdings of equities at about 8–11%. Why so low? “The more attractive and less volatile returns obtainable from investment in fixed income is a significant factor,” he says. “Limited depth and liquidity of the equities market, especially in blue chips stocks are also limiting factors.”

Pension fund managers are just being rational: Omoera points out that the Nigerian Stock Exchange (NSE) lost an aggregate of 19% in value between 2006 and 2016 while over the same period consumer prices rose by an aggregate of 193%. It makes sense to be underweight on equities.

Looking toward recovery

More fundamentally, NSE-listed stocks have mirrored the weak performance of the Nigerian economy in general. But when things do turn around, what stocks are likely to be attractive?

Companies with low or declining cost profiles, quality earnings from core operations, and good corporate governance are much sought after. Top Tier 1 banking names are key holdings. Cement majors are also considered attractive; that is, if the Nigerian government carries out planned huge infrastructural spending. However, as the consumer sector is still struggling under the high cost of doing business, reduced margins, expensive financing and goods distribution challenges, it might be a while before stocks in that sector outperform.

But what about the much anticipated listing – now delayed till 2018 – of MTN, a leading mobile telecommunication network provider in the country? “The successful completion of MTN listing will deepen the equity market and might revive investor interest especially those that want some exposure to the telecommunication sector,” says Feyisike Ilemore, a research analyst at investment bank CardinalStone.

Other planned listings could also help lift the bourse. Indorama Eleme Petrochemicals, a fertiliser manufacturer, has announced plans to list on the NSE three years from now. Unilever Nigeria Plc and Union Bank Plc have announced plans to issue shares to existing shareholders before the end of the year.

However, “if the economy remains in its current state without any sustainable policy to improve activity on the NSE then the recovery in the market will only be brief,” Ilemore concludes.

Rafiq Raji

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